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European Court Advisor Affirms Royal Mail's VAT Exemption

by Ulrika Lomas, for LawAndTax-News.com, Brussels

16 January 2009

An Advocate General to the European Court of Justice has issued an opinion reaffirming the VAT exempt status of Royal Mail, the United Kingdom's universal postal service provider.

"As the provider of a universal service which is defined and controlled in the public interest, the Royal Mail is liable to pay value-added tax only where it is providing services under individually negotiated conditions," Advocate General Juliane Kokott summarized in her opinion, delivered on January 15.

The opinion sought to address the question of what conditions must apply in order for postal service providers to be exempted from value added tax. This question arose following an objection made by TNT Post UK Limited, which takes the view that the postal services provided by the Royal Mail should not be exempted from value added tax.

Under the Sixth VAT Directive, such an exemption is available in respect of ‘public postal services’. But even though a public postal service no longer exists in the fully-liberalized market of the United Kingdom, Kokott emphasized that it would be inconsistent with the objective of the exemption from VAT to no longer to apply the exemption where a state provider no longer exists. Furthermore, Kokott argued, because the Postal Directive and the VAT Directive overlap in seeking to ensure the general provision of postal services at affordable prices, the operators of the public postal network who provide the universal service can be regarded as public postal services.

Nevertheless, the Advocate General took the view that not all services provided by the Royal Mail are, of necessity, exempted from value-added tax. Rather, the exemption applies only to those services which are provided in the public interest.

Opinions of Advocates General, which seek to guide the judges of the European Court of Justice, are non-binding. However, the full court endorses these opinions in the majority of cases.

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